Biotech could be due for a turnaround thanks to these stocks

Biotech stocks as a group have suffered a tough start to the year, but traders are beginning to see a turnaround for the struggling sector led by big-cap biotech stocks.

When he looks at the Nasdaq Biotech ETF (IBB), Piper Jaffray technical analyst Craig Johnson sees “a series of higher highs and higher lows coming off the recent lows here in that particular index.”

Johnson said Friday on CNBC’s “Trading Nation” that the IBB could actually reverse its downtrend if it manages to close in the $290 to $300 range.

Among the biggest drags on the group have been Regeneron andAlexion. Both stocks have slid more than 20 percent this year, and made up 7.5 percent and 4.2 percent of the IBB when the year began.

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Stifel Nicolaus portfolio manager Chad Morganlander points out that investors can’t ignore biotech’s big companies, as opportunities are starting to present themselves. Looking at the biggest names in the group, Morganlander believes that Amgen is still a safe bet.

“We think this stock can go to $200 a share,” he said, which would be a substantial improvement from Friday’s closing price of $156.74. He points out that dividends and revenue have grown substantially over the past year, and he expects both to continue to increase.

“I would focus my attention on all of these mega-cap biotechs, because revenues are going to continue to grow and earnings, and that’s quite different overall from the S&P 500,” he added.

Johnson also thinks large-cap biotech is set for a turnaround. According to Johnson, of the 10 big names that make up 50 percent of the IBB’s market cap, five actually look to be reversing their longer-term downtrends, meaning that “something positive is starting to unfold” with biotech’s largest stocks.

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